Friends of yours have decided to start a bungee jumping facility over weekends and have registered Just

Jump CC for purposes of trading. No equipment has been acquired yet.

The procedures for bungee jumping are the following:

A group of six people get into a cage, which is hoisted up to a certain height with a crane.

One person jumps at a time, and his/her only connection to the cage is a rubberband. The one end

of the rubber band is fixed to the cage; the other end isfixed to the waist or legs of the person

jumping. After swinging for some time on the rubber band, the person is released onto a safety

mattress on the ground. As soon as everybody has had a turn to jump, the cage is lowered to the

ground and ready for a new group of people.

The facility will be made available at different locations, depending on the events in a specific area,

therefore the unit to be acquired must be mobile.

There are only two suitable models available, the details of which are as follows:

Height of jump

Model A

45 metres

Model B

60 metres

Cost price of unit $450 000 $500 000

Duration of session, based on a group of six people

(including the time required to hoist up the cage) 45 minutes 60 minutes

Annual fixed operating expenses $389 325 $423 950

Variable costs per jump $13 $13

Selling price of tickets per person per jump $100 $135

The facility will be in operation from 09:00 daily on every Saturday and Sunday of the year. The last

jumpers have to be back on the ground by 21:00. It is envisaged that it would operate at full capacity,

no matter which model is acquired.

REQUIRED

(a) Determine the breakeven point in terms of a number of jumps in respect of Model B. (3)

(b) Determine, only with regard to Model A, how many jumps would ensure an annual net

profit of $302 325. (5)

(c) Calculate the margin of safety envisaged for Model B and give a brief description of the

significance thereof. (7)

(d) State three factors (other than estimated profitability) that your friends should take into

account before they decide which model to acquire.